Since fundamentals have been irrelvant for years, the only possible (short-term) guide in a market in which the only thing that does matter is the Fed’s balance sheet, are trends (as Hugh Hendry put it so appropriately) here are some technical trade ideas from Bank of America, on the EURUSD, Treasurys, the S&P500 and WTI.

First, on FX:

Looking for the EURUSD Top:

 

As we recently wrote in our 2014 Year Ahead report, we are US $ bulls for the year ahead and look for €/$ to trade lower toward the Apr’12 lows, at 1.2746, and, potentially, the 200m avg. near 1.2173. In the nearer term, we continue to see the gains from the 1.3295 Nov 07 low as corrective and temporary. The impulsive decline from the 1.3833 high on Oct 25 says the trend has turned bearish for the 200d (now 1.3248) and, potentially, the 17m channel base at 1.3065. An impulsive decline below 1.3694 confirms the trend has resumed lower, while OUR BEARISH VIEW IS INCORRECT ON A BREAK OF 1.3833.

 

Next, on Treasurys :

Head and Shoulders base says stay bearish 5yrs.

 

Since the Friday NFP, we have seen a sizeable, bullish turn in US Treasuries. However, despite this turn, the bigger picture trend continues to say, “STAY BEARISH”. Our point of focus remains very much on the 5yr, where the 2m Head and Shoulders Base remains intact. Indeed, it is quite common to see a “re-test” of a Head and Shoulders neckline following the formation’s completion. That is likely what we are seeing here. With the neckline currently at 1.447%, further yield weakness, price strength should prove limited before the larger bear trend resumes. We have taken this counter-trend move as an opportunity to add to our TYH4 short (recall we recommended going short in last Thursday’s Liquid Technical Alert) at 124-20+ for an average of 124-17+. Our stop is 125-08 and our downside target is 122-06+.

 

Next, on the S&P500 (via ESZ3):

Watch SP500

 

Turning to ESZ3, the break of 1799.75 alleviates the correction risk and points to bull trend resumption. A break of 1812.50 confirms, targeting 1847/1850. Below 1799 means renewed range trading, while bears gain control below 1773.25

 

And finally, on crude:

Get ready to buy a WTI pullback

 

The CLF4 impulsive advance from 91.77 says the near-term and, POTENTIALLY, medium-term trend has turned bullish for WTI. In the sessions ahead, we will look to buy a pullback into 95.74 for 102.95/103.00 and, POTENTIALLY, the multi-year range highs near 110.55 and beyond. WTI bulls, GET READY.

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Mw2M_ZocdWc/story01.htm Tyler Durden

Since fundamentals have been irrelvant for years, the only possible (short-term) guide in a market in which the only thing that does matter is the Fed’s balance sheet, are trends (as Hugh Hendry put it so appropriately) here are some technical trade ideas from Bank of America, on the EURUSD, Treasurys, the S&P500 and WTI.

First, on FX:

Looking for the EURUSD Top:

 

As we recently wrote in our 2014 Year Ahead report, we are US $ bulls for the year ahead and look for €/$ to trade lower toward the Apr’12 lows, at 1.2746, and, potentially, the 200m avg. near 1.2173. In the nearer term, we continue to see the gains from the 1.3295 Nov 07 low as corrective and temporary. The impulsive decline from the 1.3833 high on Oct 25 says the trend has turned bearish for the 200d (now 1.3248) and, potentially, the 17m channel base at 1.3065. An impulsive decline below 1.3694 confirms the trend has resumed lower, while OUR BEARISH VIEW IS INCORRECT ON A BREAK OF 1.3833.

 

Next, on Treasurys :

Head and Shoulders base says stay bearish 5yrs.

 

Since the Friday NFP, we have seen a sizeable, bullish turn in US Treasuries. However, despite this turn, the bigger picture trend continues to say, “STAY BEARISH”. Our point of focus remains very much on the 5yr, where the 2m Head and Shoulders Base remains intact. Indeed, it is quite common to see a “re-test” of a Head and Shoulders neckline following the formation’s completion. That is likely what we are seeing here. With the neckline currently at 1.447%, further yield weakness, price strength should prove limited before the larger bear trend resumes. We have taken this counter-trend move as an opportunity to add to our TYH4 short (recall we recommended going short in last Thursday’s Liquid Technical Alert) at 124-20+ for an average of 124-17+. Our stop is 125-08 and our downside target is 122-06+.

 

Next, on the S&P500 (via ESZ3):

Watch SP500

 

Turning to ESZ3, the break of 1799.75 alleviates the correction risk and points to bull trend resumption. A break of 1812.50 confirms, targeting 1847/1850. Below 1799 means renewed range trading, while bears gain control below 1773.25

 

And finally, on crude:

Get ready to buy a WTI pullback

 

The CLF4 impulsive advance from 91.77 says the near-term and, POTENTIALLY, medium-term trend has turned bullish for WTI. In the sessions ahead, we will look to buy a pullback into 95.74 for 102.95/103.00 and, POTENTIALLY, the multi-year range highs near 110.55 and beyond. WTI bulls, GET READY.

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Mw2M_ZocdWc/story01.htm Tyler Durden

Submitted by Peter Tchir of TF Market Advisors,

Volcker Rule – Who cares?  I know we are supposed to care more about this convoluted rule, but we just can’t.

The concept that somehow “prop” trading brought down the banks seems silly.  The idea that market making desks were a dangerous part of the equation is ludicrous.

They could have fixed this with a few simple changes, but that would have meant some blame would have had to be shifted onto the regulators…

The inability of regulators to communicate and create consistent rules had more of an impact than anything else.  The single biggest problem was that the insurance rules and bank rules did not line up.  Banks could load up on AAA tranches of ABS CDO’s (including sub-prime) and buy protection for companies that could never hope to pay it off if it went wrong and attract almost no regulatory capital.  The entity that sold it would run some actuarial models and also have no regulatory capital.  At some point the regulators allowed some AAA risk, which should have attracted significant capital, to attract none.  Making the insurance regulators and bank regulators communicate and close loopholes would be a simpler and more effective solution than Volcker.

The rest could be fixed by a few simple hires.

First, hire a junior person from the risk management side of any mediocre hedge fund.  They would immediately want to put in place some limits on gross notionals.  Yes, hedging and relative value is potentially profitable, but you still want to limit the size.  That would reduce curve trades, the unnecessary proliferation of back to back derivative trades, etc.  It would help ensure that the “worst case” isn’t so bad or so convoluted that investors get too nervous.

 

Second, hire a junior level accountant.  They could quickly realize that when some massive percentage of the P&L is driven by model risk (correlation trading for example) you should be nervous.  Limit the amount of risk offset that can be derived from models and do the same with P&L.  It is great that banks can use their models for capital requirements and to a large degree it makes sense, but models are notoriously wrong – sometimes by accident, sometimes because no one knows better, and sometimes on purpose.  Don’t eliminate the use of models, but keep it to a size that is reasonable.

 

Third, hire someone from the IRS.  Make a “progressive” capital system.  Charge more as the size of a position increases.  Owning $25 million, $100 million and $250 million of the bond is not usually linear.  In most cases owning $250 million is more than 10 times riskier than owning just $25 million.  This applies to individual holdings and a portfolio.  Too big to fail would yelp but that is the reality and would be much simpler than what we got.

 

Fourth, hire a retired mid-level commercial banker from the 80’s.  They can remind everyone that lending is risky and that banks have blown up in the past based on dumb loans, no mark to market accounting, and inadequate reserves.  Banks don’t need these newfangled inventions to blow themselves up – they were capable of blowing themselves up in the exact sort of environment Volcker seems intent on dragging them back into.

 

Five, fire 1,250 lawyers.  The ratio of lawyers to people who know their way around trading or risk is absurd.

In the end, banks are taking less risk because they don’t want to.  If and when they want to, they can probably find a way.  The Volcker rule is overly complex.  Banks will shy away from activities for now.  That is probably bad for bank stocks at the margin but remains good for bank credit as tail risk is pushed off (at least until they get bloated on bad loans, but that is years away).

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/uZDcrVvV01o/story01.htm Tyler Durden

Submitted by Peter Tchir of TF Market Advisors,

Volcker Rule – Who cares?  I know we are supposed to care more about this convoluted rule, but we just can’t.

The concept that somehow “prop” trading brought down the banks seems silly.  The idea that market making desks were a dangerous part of the equation is ludicrous.

They could have fixed this with a few simple changes, but that would have meant some blame would have had to be shifted onto the regulators…

The inability of regulators to communicate and create consistent rules had more of an impact than anything else.  The single biggest problem was that the insurance rules and bank rules did not line up.  Banks could load up on AAA tranches of ABS CDO’s (including sub-prime) and buy protection for companies that could never hope to pay it off if it went wrong and attract almost no regulatory capital.  The entity that sold it would run some actuarial models and also have no regulatory capital.  At some point the regulators allowed some AAA risk, which should have attracted significant capital, to attract none.  Making the insurance regulators and bank regulators communicate and close loopholes would be a simpler and more effective solution than Volcker.

The rest could be fixed by a few simple hires.

First, hire a junior person from the risk management side of any mediocre hedge fund.  They would immediately want to put in place some limits on gross notionals.  Yes, hedging and relative value is potentially profitable, but you still want to limit the size.  That would reduce curve trades, the unnecessary proliferation of back to back derivative trades, etc.  It would help ensure that the “worst case” isn’t so bad or so convoluted that investors get too nervous.

 

Second, hire a junior level accountant.  They could quickly realize that when some massive percentage of the P&L is driven by model risk (correlation trading for example) you should be nervous.  Limit the amount of risk offset that can be derived from models and do the same with P&L.  It is great that banks can use their models for capital requirements and to a large degree it makes sense, but models are notoriously wrong – sometimes by accident, sometimes because no one knows better, and sometimes on purpose.  Don’t eliminate the use of models, but keep it to a size that is reasonable.

 

Third, hire someone from the IRS.  Make a “progressive” capital system.  Charge more as the size of a position increases.  Owning $25 million, $100 million and $250 million of the bond is not usually linear.  In most cases owning $250 million is more than 10 times riskier than owning just $25 million.  This applies to individual holdings and a portfolio.  Too big to fail would yelp but that is the reality and would be much simpler than what we got.

 

Fourth, hire a retired mid-level commercial banker from the 80’s.  They can remind everyone that lending is risky and that banks have blown up in the past based on dumb loans, no mark to market accounting, and inadequate reserves.  Banks don’t need these newfangled inventions to blow themselves up – they were capable of blowing themselves up in the exact sort of environment Volcker seems intent on dragging them back into.

 

Five, fire 1,250 lawyers.  The ratio of lawyers to people who know their way around trading or risk is absurd.

In the end, banks are taking less risk because they don’t want to.  If and when they want to, they can probably find a way.  The Volcker rule is overly complex.  Banks will shy away from activities for now.  That is probably bad for bank stocks at the margin but remains good for bank credit as tail risk is pushed off (at least until they get bloated on bad loans, but that is years away).

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/uZDcrVvV01o/story01.htm Tyler Durden

Introduction

I don’t have an official definition of a market bubble, but we can probably all agree on this: stock prices are currently divergent not only from the economy but from the underlying market fundamentals. So if you think the current stock run is justified, then you likely believe that stocks are forecasting better growth in the economy or market fundamentals (i.e., earnings) will improve or that there will be some catalyst that justifies the price ramp. The best and most easily identifiable catalyst has been Federal Reserve largesse, and this has done little for the economy. In addition, market intervention has distorted normal market signals. Federal Reserve policy doesn’t improve investment in the real economy but rather diverts investment capital away from the economy and into risky assets. Like so many things about the years since the financial crisis, it creates the illusion of wealth without a sound underpinning. I have no doubt that keeping interest rates artificially low has a positive effect on those sectors of the economy that are interest rate sensitive, but all this does is pull demand forward like the “cash for clunkers” program. Is there demand for homes because wages and salaries are growing or because interest rates are a great deal? I would argue that it is the latter. It just doesn’t seem intuitively correct that you can print your way to prosperity.

Continue reading “Weekly Sentiment Report: The Biggest Bubble”

Back in September, courtesy of an unprecedented discrepancy between the JOLTS “net turnovers” (or hires less separations) print, which traditionally has been the equivalent of the NFP’s establishment survey monthly job additions, we highlighted just what happens when the BLS has caught itself in a estimation lie, and is forced to adjusted the data set both concurrently and retroactively to correct for cumulative error.

We suggested that as a result of this public humiliation, the BLS would have no choice but to ramp up its monthly net turnovers print in order to “catch up” to what the monthly payrolls survey indicated is America’s “improving” jobs picture.

Sure enough, when moments ago the latest October JOLTS survey was released, the October “net turnovers” number soared from 155K in September to a whopping 260K in October, more than eclipsing the revised NFP print of 200K job gains in October, and leading to the second highest JOLTS turnover print since February’s 271K, and before that – going back all the way to the 287K in February of 2012. And yes, this was in the month when the government had shut down and the result was supposedly major, if temporary, job losses.

Today’s number also means that the YTD monthly average job gain based on either the payroll data or the JOLTS survey has declined to just 24K (160K for JOLTS, 184K for NFP), the lowest average difference in 2013.

Finally, this is how the difference between the two time series on a monthly snapshost basis looks:

Why is any of this important? Because to Janet Yellen, the JOLTS survey has traditionally been an important secondary metric for the jobs market, and judging by the huge jump in implied job gains, if indeed the Fed was in a tapering mood, the December FOMC meeting looks increasingly like the day when a Taper may be announced. Of course, that ignores how a very illiquid market would react, and is perhaps the reason why December’s final, massive double POMO is on the day just after the FOMC announcement.

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Ey3Ka4YuS40/story01.htm Tyler Durden

We can only imagine the upward revisions to GDP that will occur due to the largest mal-investment-driven wholesale inventory build in over 2 years. The 1.4% MoM gain is over 4x the expectation and biggest beat since Q4 2011, when – just as now – a mid-year plunge was met by a rabid over-stocking only to see the crumble back into mid 2012. As we noted previously, 56% of economic "growth" this year was inventory accumulation (cough auto channel stuffing cough) and this print merely confirms "hollow growth" continues.

 

 

 

As we noted previously,

So how does inventory hoarding – that most hollow of "growth" components as it relies on future purchases by a consumer who has increasingly less purchasing power – look like historically? The chart below shows the quarterly change in the revised GDP series broken down by Inventory (yellow) and all other non-Inventory components comprising GDP (blue).

But where the scramble to accumulate inventory in hopes that it will be sold, profitably, sooner or later to buyers either domestic or foreign, is seen most vividly, is in the data from the past 4 quarters, or the trailing year starting in Q3 2012 and ending with the just released revised Q3 2013 number. The result is that of the $534 billion rise in nominal GDP in the past year, a whopping 56% of this is due to nothing else but inventory hoarding.

 

The problem with inventory hoarding, however, is that at some point it will have to be "unhoarded." Which is why expect many downward revisions to future GDP as this inventory overhang has to be destocked.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/rQuUsIqbZZM/story01.htm Tyler Durden